Prof. Stiglitz on Indian economy

India did a number of things in the right way, some over a long period, some in the short run, and the world changed in a way that was just right for India.

Can Indian growth be sustained without major contributions from manufactoring sector?

…but there is no a priori reason to stress manufacturing. We should ask what the comparative advantages are, and, from a global perspective, whether one can have sustained growth based on a service sector economy. The answer is clearly yes. Can you have heavy exports related to services? Again, the answer is yes. Creating jobs is an important issue, but it may be that, for instance, part of the strategy for creating jobs will involve expanding tourism, which is a very labour intensive service sector. The problem in manufacturing is that modern technology doesn’t use much labour. Most modern technologies in manufacturing are very capital intensive.

On the need for welfare schemes (or, trickle-down economics does not work):

I think they’re absolutely necessary for long-term sustainable growth. Latin America has shown what happens with high degrees of inequality. You get political and social instability. You have high crime rates and an environment that’s not good for investment. What’s also very clear is that trickle-down economics doesn’t work. It hasn’t worked anywhere. It hasn’t worked in the United States. Even though GDP is going up, most Americans are worse off today than they were six years ago.

In addition, there is a detailed discussion about privatisation, and how it does not always increase efficiency.

Finally, there is this interesting piece about foreign aid to US:

The system of seigniorage to the U.S. is inequitable. The foreign aid from developing countries to the U.S. is greater than the foreign aid the U.S. gives and the system has a downward bias in aggregate demand. This is a very peculiar and unstable system where the only thing keeping global demand strong is if the richest country in the world consumes beyond its means. As the U.S. gets more and indebted, confidence in the dollar erodes, and it no longer is a good store of value.

Rather than holding dollars as reserves, countries should hold an internationally created `bancor’ or global greenback — a `money’ that’s used in reserves and is convertible into ordinary currency. The idea is similar to special drawing rights but the SDR system is periodical and subject to veto by the U.S., which mistakenly thinks it gains from the system. I argue it doesn’t. It gains seigniorage, but it loses stability. My proposal is for a regular rather than periodic system and one that is automatic and rule based.